How UK fintech startups are preparing for open banking

How smaller UK financial services companies are looking to take advantage of new regulations

As new regulations come into force across Europe in 2018 with the Second Payment Services Directive (PSD2) and open banking in the UK, financial services companies big and small, from multinational banks to nimble startups, are busy getting to grips with the opportunities and threats these new regulations create.

Open banking forces banks to make customers' financial data available to be shared with trusted third parties via secure application programming interfaces (APIs). This will shift their role from being one-stop-shops for financial services to more open platforms where consumers can start to embrace a modular approach to banking, opening the door to innovative fintech startups to offer consumers better ways to manage their finances online.

Major banks are scrambling fast to not only comply with the regulation by opening up their APIs, but are also looking to leverage the new open landscape to separate themselves from their competitors and avoid being bitten by these fintech startups.

Take HSBC UK, which has proved itself to be an early mover when it comes to PSD2 by announcing a new beta app which will allow customers to see all of their accounts on one screen, even if they are with a rival bank.

However, UK challenger banks like Monzo and Starling, as well as some other fintech startups listed below, have been working towards the idea of open banking for some time now. Here's how they are setting themselves up to take full advantage of open banking...

1. Monzo

Popular challenger bank Monzo has released an "interim API" to coincide with the arrival of open banking, allowing access to third party companies authorised by the Financial Conduct Authority (FCA) as Account Information Service Providers (AISPs).

According to a blog post by Simon Vans-Colina, an engineer at Monzo, the new API, which they are calling the AIS API, "will be made available to particular companies, that have been granted authorisation as AISPs.

"Companies applying will have to show that they will follow the regulations laid out by PSD2, including rules about keeping your account and data safe and secure, and only using their access to provide the service that you've asked for."

Vans-Colina explained that the Monzo API "has so far served two purposes": to power its core app and to allow developers to build on top of Monzo's core banking platform.

Now, through the AIS API, these approved third parties can access a list of accounts, an account's balance and an account’s transactions.

Monzo is now working on a second version of this API which will "make available a much more comprehensive, complete API to developers and third parties," Vans-Colina wrote.

This should include functionality like making payments, updating and creating feed items, and full access to a customer’s data and accounts.

2. Starling Bank

Fellow challenger bank Starling has also been building towards being a lender for the open banking era.

Speaking to Computerworld UK, CEO Anne Boden said that the bank was founded on the principle of "providing the hub for you financial life".

"So, data from day-to-day transactions and allowing you to have connectivity to other providers of financial products in a marketplace and those marketplace participants connect to Starling using open APIs," she said.

In a blog post she added: "We’re able to do this given we're a licensed bank, have open APIs, and have regulatory permissions to introduce our customers to third-party financial products."

Boden is realistic about the public perception of open banking, and believes that the concept will live or die depending on the value it can deliver to customers.

"An open API to a consumer means nothing, but a marketplace where they can use other products in a controlled and safe way is a differentiator," she said.

Starling Bank claims to be the first UK lender to offer a developer API, with full documentation and a sandbox environment to test in, and clients appear to be impressed so far.

As CEO of recent Starling partner Emma (also on this list) Edoardo Moreni put it in a tweet to us: "Yes, @StarlingBank provides more data and also the ability to receive notifications when things change. We are currently hitting the Monzo API every hour, because they don't have a webhook."

3. Iwoca

As a fintech company specialising in providing small business loans far quicker than incumbent banks by using software to make credit decisions, Iwoca is very excited by the opportunities open banking presents.

As CEO Christoph Rieche explained to our sister site Techworld, real-time access to customers' transactional data, which the banks have traditionally held onto for current accounts, is very valuable to his company.

"Up to today it has been very hard to get that information in a truly verified and seamless format," he said.

Previously customers would submit statements, mostly as PDFs, and Iwoca would scrape the information from those documents using software in order to make a credit decision. Now, with seamless access to transaction data, Iwoca should be able to remove this friction, and any risk of human error or fraudulent documents being submitted.

"I believe open banking makes this data flow a lot more secure and seamless and there will be much higher adoption due to the increase in speed," Rieche added.

The CEO hopes that continued access to client information will allow Iwoca to provide ongoing credit facilities without customers having to resubmit documents. He also believes that having this real-time access to customer data "allows us to add more value added services to customers" over time.

4. Chip

Chip is an automated savings app which links up with your current account. The Chip algorithm calculates how much you can afford to save and transfers it to a Chip savings account - held with Barclays - adjusting all the time depending on spending habits.

CEO Simon Rabin explained to Computerworld UK how open banking could benefit all sorts of fintech companies. "In a utopia consumers can start to grant affordability criteria to a lender, provide transaction data to a savings mechanism like Chip, or income data to a mortgage lender," he said. "You can choose exactly which data you want which third parties to access, so it puts control into the customer's hands."

Chip is currently going through the process of becoming a regulated account information service provider (AISP) with the Financial Conduct Authority (FCA). What this will mean is that with open banking in place, no bank will be able to deny its customers, or recommend against, accessing Chip's services.

"What it does is validates what we have been doing so far," Rabin said, "Open banking will open this up to the mainstream and make it more normal for mobile banking customers to use a variety of third-party providers to add value to their banking stack with transaction analysis or automated savings."

By having direct access to real time transaction data Chip can start to truly "help optimise the customer's financial life," Rabin said.

5. TrueLayer

Few fintech startups are as prefaced on the concept of open banking as London-based TrueLayer, which has built an API (actually two APIs, one for account data and one for payments) enabling turnkey access to the newly opened-up banking data without fintechs having to design their own integrations.

Cofounder Francesco Simoneschi likes to compare TrueLayer to Twilio or Stripe, two companies that provide simple, secure and regulated access to core infrastructure (be it telco networks or payments infrastructure, respectively) through a core API.

So TrueLayer sits between the new breed of fintech companies looking to deliver value from newly opened customer financial data, and underlying banking infrastructure, charging a small fee for access to the API.

Simoneschi said that open banking and PSD2 mean that "there is a very clear understanding of how things work and what the opportunity for consumers and companies involved is," which should provide plenty of business opportunity for his startup.

"It opens up a market of more companies to work with," he said.

Then, from a technical standpoint: "We have done some work and will continue to integrate with open banking infrastructure. Before we were accessing private APIs from banks, so PSD2 will allow more streamlined integration."

TrueLayer has been regulated by the FCA to be an account information service (AIS) and payment initiation service (PIS) provider.

6. Yolt

Founded in 2016 out of the innovation lab of Dutch high street bank ING and subsequently based and launched in the UK, Yolt is a fintech app founded on the promise of open banking.

In practice this means a consumer-friendly interface which connects to a range of bank accounts. Yolt claims to be the first fintech to make a secure connection to a UK bank's API, connecting to Lloyds Banking Group on 17 January 2018. Yolt has oAuth2 API connections to all Lloyds Banking Group, RBS and HSBC brands, as well as challenger bank Starling, at the time of writing.

The app categorises payments, forecasts future outgoings and has a partner marketplace for deals on other financial services like energy comparisons or money transfers with Moneytis. It also offers money advice in-app.

Yolt is a free app and it makes affiliate revenue from customers purchasing products from partners within its marketplace.

Speaking at the time, O'Connor said: "We're really excited about what open banking will do for customers over the next few years. Blowing the lid off the data will help self-employed people and small businesses ditch the manual work needed to file tax returns, freeing them up to earn more money."

8. Bud

Another winner of Nesta's prize was Bud, a fintech focused on giving users a fully customisable banking app.

Jamie Campbell, head of awareness at Bud, said earlier this year: "SME banking has traditionally seen a focus on financial silos. The accountancy software as the financial hub of the business, the bank account as the place for payments and credit providers as lenders of opportunity or strategic growth partners (but rarely both).

"Open banking will allow people to re-wire that whole experience. Business owners will see smart, connected bank accounts that anticipate their needs, credit will become part of the normal flow of a business and the tools used to monitor and plan the business will need to integrate seamlessly into that ecosystem to stay relevant. That's Bud's ambition."

9. Emma

UK fintech company Emma was approved by the FCA to operate as a payments company under PSD2 in January.

Cofounder Edoardo Moreni wrote in a blog post at the time: "Emma is currently building the banking app for millennials (iOS and Android), a mobile-only solution that helps consumers avoid overdrafts, find and cancel subscriptions, track debt and save money.

"Emma is here to solve this problem and try to give customers a different banking experience, which puts them first, not their money or background."

Since being approved, Emma has been busy building integrations with fellow fintechs and challenger banks, with the first being announced towards the end of January with Monzo and Starling Bank coming soon.

10. Contego

UK regtech startup Contego has been selected after a tendering process by The Open Banking Implementation Entity (OBIE) to "support Open Banking's identity proofing and verification processes, and ensure security and customer needs are embedded at its core," as was laid out in a press release.

CEO Adrian Black told Computerworld UK that Contego has been selected to "police people using the platform, not the end consumers."

This means verifying the identity of businesses or individuals that are given access to the open banking platform, and ensuring unauthorised bodies can't get access to the data there.

"So we then vet those individuals online," Black explained. "So we do KYC to verify the authenticity of identity documents, current address and a verified history of that identity. If that staff changes we have monitoring processes to ensure everyone touching the platform and has access are who they say they are."

11. Smart Bill

London-based startup Smart Bill is tackling the 'subscriptions trap' where consumers are still being billed for subscriptions that they don't need or have forgotten.

Smart Bill currently scrapes your bank account, once given permission of course, to spot recurring payments to categorise them in an easy to read dashboard. Users can then select subscriptions and have Smart Bill cancel them on their behalf. The app also can identify renewal dates automatically using algorithms across bills for mobile, energy and insurance to ensure users are getting the best deal at renewal.

Smart Bill currently uses aggregation software from Yodlee, but with open banking they are migrating away from screen scraping towards direct API feeds. The startup has applied to be a registered account information service provider with the Financial Conduct Authority to do this.

Nikhil Shah, CEO and cofounder of Smart Bill told Computerworld UK: "The benefit will be a trust from the general public as they become more comfortable with services in open banking we will see more people sign up for the services like ours and it will make the whole thing quicker and more efficient."

12. Akoni Hub

Emerging fintech company Akoni Hub is looking to help SMEs manage their cash by better using data.

Felicia Meyerowitz Singh, cofounder and CEO of Akoni Hub told Computerworld UK: "We match to changing circumstances. So we take their cash balance and forecast to market products that work for them.

"Businesses have multiple maturity periods that change month to month, so you need an algorithm and we have multiple data sources to match these two changing circumstances as cash balance and the market and products all change all of the time."

The introduction of open banking gives Akoni Hub the ability to ingest current account data for SMEs to make more accurate forecasts.

"The core aim is to take those insights and make recommendations and then executing on them. Traditionally there would be some insights but then you would have to figure out the best products and go and fill in forms and execute," Meyerowitz Singh said.